Not every company starts by selling software to Mennonites, but that's how Kitchener-based Covarity was born.

Now, the company is applying six years of experience and 2.5M in fresh funding to take their commercial credit monitoring and management solution to Canada's largest lenders.

Link to article on Red Canary website

Red Canary sat down with Rod Foster, Covarity's CEO, to talk about its unique origin and current direction.

Tell me about Covarity's genesis.
Covarity was incorporated in December of 2001. The Mennonite Credit Union had a problem in getting timely financial statements, so Covarity went in and sat in their lending environment and automated the process [for them].

"If you took Canada's credit unions and put them together they'd be the second largest lender to small business in the country"

The organization got its first [Venture Capital] funding in October of 2003. Tech Capital Partners gave some seed money to the original founders and that blossomed into an opportunity to work with the Credit Union Central of Canada - and through them - 500+ credit unions. In 2005, we signed just shy of 20 credit unions.

Where did that early funding go?
Primarily research and development and biz-dev.

$2.5 million in funding from BDC Venture Capital, GrowthWorks and VentureLink says you're ready to grow. Where is Covarity headed?
In 2005 we concentrated in the Canadian credit union marketplace. In 2006 we started to move into a newer market - the banking industry. We were fortunate to sign Laurentian Bank and enter into a pilot agreement with another one of the 'big six'.

Tell me about the transition from pitching to Credit Unions to selling into banks.
The value proposition is the same; we're addressing the same issues. We're not changing our core competencies.

Is your web-based solution an easy sell to credit unions? What about banks?
It's...different. A smaller institution doesn't have the IT infrastructure, so they are more likely to say 'hey this makes a lot of business sense, let's go'. We use SaaS as a major advantage.

Can you elaborate on that?
Credit Unions are fairly sophisticated lenders. Obviously they don't have the technology budgets of the banks, but they spend wisely.
For the larger institutions [SaaS] is relatively new, we don't see that as an inhibitor because there are so many advantages - i.e. time to market. The read from a significant [financial] consulting firm was that the US is well on its way to accepting and deploying SaaS solutions, Canada just tends to be a little more conservative.

The difference in selling to the larger banks - because of the visibility that they have - is that they are very interested in security and disaster recovery, they are very much process driven. You spend a lot more time on that front as opposed to a credit union.

Are you looking at moving into the less regulated and more fragmented US banking market?
We'll move into the US market, we've tested the waters a few times the last couple of years...but the opportunity in Canada for us is huge, so we're going to stay the course.

How many people do you have working at Covarity?
26

Do you outsource?
We have on project management, but we haven't been forced to. With the volume of work coming at us and the size of the projects we're working on we have to think about it.

One of the things we're going through right now is 'what do we want'. We're lining up a couple of significant deals...what I have to figure out is "how much can we absorb internally and how much of it will we look to outsource". I would suggest we're going to come out of 2007 with another 10-12 people.

To find good developers with .Net experience and good quality testers in a hot market like KW is a challenge. But it's a wonderful area to build a company in.

Why is that?
I can't think of a place that I've seen - in my life - that has an infrastructure that is as supportive as Kitchener-Waterloo for technology companies to start and grow. It's not just the organizations there, it's the 'help' mentality of people.

"You've got infrastructure, you've got great talent with two universities feeding it -- and you've got a group of people who aren't afraid to share ideas and help each other grow"

How is Covarity going to change with the signing of Laurentian and possibly other major banks?
Your challenges change...you never take your eye off development, sales and closing deals but at the same time you try to mature in the services side - project management and support.

What's your background? How did you find your way into Covarity?
A: My background is in business [Rod has a business degree from Wilfrid Laurier University]. After working in different parts of the technology industry - hardware, software, and distribution, I moved to the US to help Ironside Technologies in 1997. It sold in 2003.

I found my way to Covarity through Andrew Abouchar of Tech Capital Partners Andrew was an investor in Ironside and Tech Capital was an early investor in Covarity.

Your organization was founded in 2001, a very dark time for software companies, and now you're selling into challenging markets. What's kept the company afloat and what advice would you give to a fledgling organization?
Covarity went through a very hard period - but we have a great set of individuals in terms of A) professionalism and B) dedication.

We made very sure to get some good first customers. We treated them very well and they've treated us very well. That's worth more than its weight in gold.

"We went through a hand-to-mouth time, we learned our lessons - and what got us through is that we're very focused on sticking to our priorities and not getting sidetracked."

Thanks Rod.
You're welcome.